Debt of top 30 steel firms hits record US $150 billion: E&Y

By: | Published: August 18, 2016 5:44 PM

The net debt of the top 30 steel companies globally has touched a record high of over US $150 billion, according to consultancy firm Ernst and Young (E&Y).

The global consultancy's report also reveals that major part of this (debt) is with companies in India, China and Brazil. Debt in the steel sector rose significantly between 2008 and 2013 before experiencing some relief in 2014, E&Y said in a statement. (Reuters)The global consultancy’s report also reveals that major part of this (debt) is with companies in India, China and Brazil. Debt in the steel sector rose significantly between 2008 and 2013 before experiencing some relief in 2014, E&Y said in a statement. (Reuters)

The net debt of the top 30 steel companies globally has touched a record high of over US $150 billion, according to consultancy firm Ernst and Young (E&Y).

The global consultancy’s report also reveals that major part of this (debt) is with companies in India, China and Brazil. Debt in the steel sector rose significantly between 2008 and 2013 before experiencing some relief in 2014, E&Y said in a statement.

The relief was short-lived, however, as the pressure of excess capacity, rapidly cooling demand in China and the stronger position of steel customers drove a 30 per cent decline in steel prices in 2015, it added.

The global steel sector continues to face headwinds, E&Y India’s Leader (Metals and Mining) Anjani Agrawal said.

“Lower prices and weaker demand over the last year has prevented steelmakers from reaping the benefits of ongoing debt restructuring and cost and efficiency measures,” he added.

On India, he said the government has been supportive of the industry through MIP and anti-dumping measures as well as enabling financial restructuring through the banking industry.

These measures should help the industry sustain itself in the current difficult times until demand picks up strongly in India, driven by investments in infrastructure, Agrawal explained.

“Brazil, India and China, in particular, have accumulated more debt as a result of decreased demand, new capacity spend and excess production respectively,” he said.

Meanwhile, Russia and Japan have reduced debt due to increased exports on the back of the depreciation of their domestic currencies. Similarly, the US and Europe have improved their debt situation by decreasing capital spend.

Governments around the world are working hard to find regional solutions to support their domestic steel industry, he added.

“But these solutions will only work if the companies in question have viable long-term business models. And while many steelmakers are focusing on productivity and working capital, there’s still a lot to be done,” Agrawal said.

Alternative financing, tighter controls on costs and divesting non-strategic assets to free up capital are key tactics currently playing out in the steel sector to reduce debt and release cash, the report suggests.

Agrawal said: “Closures or bankruptcies in the steel sector can have serious impacts on the local markets and also on the broader local economies.”

The sector players need to undertake real strategic changes to survive current conditions and prepare to ride the next wave of growth, he recommended.

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